The government came under fire this week from anti-poverty campaigners who said thousands of low income families face huge bills following demands for tax credit repayments.

They said the government was forcing families to return working tax credit and child tax credit payments after their income changed. Most of the claimants affected are families living on less than £14,000 that have already spent their tax credit money.

Many families have seen their tax credits payments cut back to take account of overpayments or been told to expect big cuts next year.

The Child Poverty Action Group says it has written to ministers this week to complain about tough rules in a new code of practice first highlighted by Jobs & Money a fortnight ago.

The charity says it is unhappy with the rules which are used to decide whether claimants can keep overpayments or pay them back.

A spokeswoman said: "The rates of recovery are too high in many instances and will leave families facing poverty."

The National Association of Citizens Advice Bureaux says it is disturbed at the level of repayments demanded by the Inland Revenue. A spokeswoman says tax credit claimants were overpaid through no fault of their own, yet the Inland Revenue computer often generated a lower figure for tax credit payments without any explanation.

Nacab says it wants the Revenue to review its procedures. It says officials should also send all claimants figures showing how their award was calculated.

The Inland Revenue says: "Tax credits have been designed to respond flexibly to people's current circumstances, as they are reported to the Inland Revenue, and the level of awards can fluctuate accordingly over the course of year before being finalised after the year-end.

"Where an overpayment has been made as a result of official error and claimants either know that a mistake has been made, or should reasonably have known, it is only fair to other claimants and - to taxpayers - that the Inland Revenue seeks to recover those overpayments.

"The Inland Revenue has already said that it will approach this on a case-by-case basis."

But families continue to receive letters telling them their tax credits have been cancelled or reduced following overpayments.

Tina Smith, who works for a small voluntary organisation, was awarded tax credits of £3,251. The award was based on her 2001-2002 income when she only worked for eight months. When her part time wages rose in June to £10,300 she was told her award had been cut to £2,554.

"I decided to tell the tax credit office that I had received a small pay rise in case they decided to charge me an overpayment and demand the lot back. I had been reading the horror stories in Jobs & Money. But that is where it all went pear shaped," says Ms Smith, who has asked us not to reveal her real name.

The Inland Revenue kept up her payments until a fortnight ago when it announced she had been overpaid £1911.32. "This amounts to the total tax credits I have paid to date. It is craziness, a complete farce."

Other families have found their awards have been cut, leaving them worse off than when they claimed benefits before April.

Mark and Jacqueline Riley have appealed against their award and lost, despite showing that the loss of housing benefit, council tax benefit, free prescription charges and free school meals has left them worse off.

The government promised families would not be left worse off if they claimed tax credits. Ministers said the extra benefits such as housing benefit should still be paid to claimants. But some councils have been slow to react to the changes since April and refused to maintain benefit payments. The Rileys, who live in Leicester with their two children, have spent six months wrangling with the Revenue and their local council over their income.

Ms Riley, who suffers from multiple sclerosis, says she has been left to pay the rent with her disability living allowance. "We wish we'd never claimed tax credits. It has made us ill arguing with the tax credit people."

Inland Revenue chairman Sir Nicholas Montagu is expected to face a grilling about the tax credit fiasco when he appears before a powerful parliamentary committee next week. He will be forced to explain to the Public Accounts Committee how £2bn of overpayments were made before April.